equity release

[WatsonJohnG]

Where does "Market Value Reduction" feature in any of this.

I invested in a scheme that was so well subscribed that it took 4 months for them to process the investment yet after 12 monthe the dreaded "Market Value Reduction" appeared on the statement.

It was a Pru--dent investment by the way

 

[CliveV]

Hi Paul - As I say I do not tend to use RS myself for these DGT cases - like you preferring the benefit of the Actuarial certificate. Not 100% CTO safe in the short term (what is?) but when it's my a*se in a sling I like to dot the i's and cross the t's. We act as advisers to Trustees in many such cases so we are mainly fee based.

But I do use them a lot for those clients that will hit the LTA (usually via their NHSPS benefits) and who still have income from private practice that they want to "pension". Having it rolling up gross offshore is attractive then the plan is a "head-room" check just prior to SRA to see if a pension top-up is feasible. OK - they will get a tax hit on the gain but the 40% tax relief will wipe that out.

I have found AXA IoM excellent - particularly their techies.

Interestingly we use NU Int (!!! - I know NU! - I can hardly believe I am saying this) a great deal for Higher education planning - we advise the Medical Profession as our speciality. We tended to select those providers with bases in Non-UK dependent states after Gordon insisted on CE certificates. So NU Int in Dublin worked well. We use others of course but NU Int. make the assignment of segments to the student a very easy task. What a shame there onshore operation is such a mess.

Bit academic now I appreciate but I still prefer Dublin & Luxembourg to the UK Dependent States for investor protection - particularly where individuals often work abroad for part of their career.

 

[Val & Frank]

Is downsizing not equity release without risk??? I'm all for SKI. Spend the money and then throw yourself onto the Mercy of the state. It seems to work for a sizeable chunk of the population !!!

Val & Frank

 

[CliveV]

Hi Watson - JohnG

It is a little complicated but I shall try to keep things easy to understand - If I miss something out - perhaps Paul could add a comment/update.

MVR's apply to a particular type of investment called With-profits. With profits worked by the fund manager NOT giving you all the growth in anyone year but holding some back in "Reserve" for "bad" years when this "Reserve" could be used to bolster the fund and give you "smoothed" returns.

Example

A normal managed fund may have performance like this over say, three years:-

Yr 1 +10%, Yr 2 - 5% Yr 3 + 7%

In other words the typical peaks and troughs.

Remember that the With Profits Fund Manager invests in the same assets but he "manages" the returns to smooth things out.

So in Year one he will NOT distribute all the growth, probably only giving 5% "bonus" despite the actual fund doing 10%. In year two he can still give 5% because he has accrued a good "Reserve" that he topped up by a further 5% in our Year 1 example.

So rather that the investor getting +10% one year and -5% the next, the With Profits investor just sees +5% and then a second +5%.

The problem comes in year 3 when returns are only 7% for the good of the fund and all the investors within it, giving another 5% is risky because reserves are now low compared to year 1.

So even though returns in year 3 are respectable, bonuses are likely to be only 2% that year to enable the fund manager to top up his reserves as he does not have a crystal ball and has no idea what the returns for next year will be.

What happened after 9-11 was that the markets declined for nearly four years on the trott.

So the fund managers were able to prop up With-Profits funds for a while but after that something had to give. So all With Profits funds have a MVR which allows the provider to reduce the amount in your With-Profits fund to reflect the real value within the fund.

Interestingly the MVR should be called in my opinion what it was always called and that is a Market Value Adjuster (MVA). But the FSA objected to this because they could not or would not understand that there is a positive MVA in "normal years".

What do I mean by normal?

When the Reserves are large you as the policyholder own a slice of the "Profit" (hence the term "With Profits) - so not only can your With Profits plan receive an annual bonus each year but it can also receive a Terminal Bonus on policy maturity. This Terminal Bonus has in the past been enormous - as much as a further 140% on top of the guaranteed benefits accrued via the contributions and annual bonus application.

BUT - of late there has been no Reserve Surplus - in fact there has been a negative balance in the "Reserves" - so if you take your money out, rather than getting an extra dollop of cash, you effectively get a bill for your negative slice of the non existent Reserves.

Hence my thoughts that MVA is a better description. When the Reserves are healthy the MVA is positive, it means you get a Terminal Bonus.

When the Reserves are nonexistent and the funds liability to all its policyholders is greater than the sum of is assets, then the MVA becomes the MVR - or a reduction in your fund value so that your returns reflect the true situation.

Look back at Yr1 and Year 2 in my example - at the end of year two the With Profits investor was ahead of the game having had two lots of 5%.

The Non with profit investor did far better in year one, but fell back in year 2, then recovered in year three.

With Profits, smoothes returns so that rather than sharp peaks and troughs you get a curved line. But the curve can still be up and down. It is just not so extreme.

Do I recommend With Profits - No

Why? - because there are better more secure investments and a wider choice of funds out there so you can effectively construct a portfolio for a client by having funds that reflect their short medium and long term needs.

Gone are the days when buying into one companies fund for 25 years seemed to be a good thing.

Now with fund supermarkets (for some reason now called "Platforms" in the media - no idea why - more synonymous with Trains than investments for me but what the heck!) you can open an account, tag on some life cover if you want, but move your investments/savings around within the account to different funds and fund managers.

 

[Pelyma1]

Hi Watson - JohnG

It is a little complicated but I shall try to keep things easy to understand - If I miss something out - perhaps Paul could add a comment/update.

MVR's apply to a particular type of investment called With-profits. With profits worked by the fund manager NOT giving you all the growth in anyone year but holding some back in "Reserve" for "bad" years when this "Reserve" could be used to bolster the fund and give you "smoothed" returns.

Example

A normal managed fund may have performance like this over say, three years:-

Yr 1 +10%, Yr 2 - 5% Yr 3 + 7%

In other words the typical peaks and troughs.

Remember that the With Profits Fund Manager invests in the same assets but he "manages" the returns to smooth things out.

So in Year one he will NOT distribute all the growth, probably only giving 5% "bonus" despite the actual fund doing 10%. In year two he can still give 5% because he has accrued a good "Reserve" that he topped up by a further 5% in our Year 1 example.

So rather that the investor getting +10% one year and -5% the next, the With Profits investor just sees +5% and then a second +5%.

The problem comes in year 3 when returns are only 7% for the good of the fund and all the investors within it, giving another 5% is risky because reserves are now low compared to year 1.

So even though returns in year 3 are respectable, bonuses are likely to be only 2% that year to enable the fund manager to top up his reserves as he does not have a crystal ball and has no idea what the returns for next year will be.

What happened after 9-11 was that the markets declined for nearly four years on the trott.

So the fund managers were able to prop up With-Profits funds for a while but after that something had to give. So all With Profits funds have a MVR which allows the provider to reduce the amount in your With-Profits fund to reflect the real value within the fund.

Interestingly the MVR should be called in my opinion what it was always called and that is a Market Value Adjuster (MVA). But the FSA objected to this because they could not or would not understand that there is a positive MVA in "normal years".

What do I mean by normal?

When the Reserves are large you as the policyholder own a slice of the "Profit" (hence the term "With Profits) - so not only can your With Profits plan receive an annual bonus each year but it can also receive a Terminal Bonus on policy maturity. This Terminal Bonus has in the past been enormous - as much as a further 140% on top of the guaranteed benefits accrued via the contributions and annual bonus application.

BUT - of late there has been no Reserve Surplus - in fact there has been a negative balance in the "Reserves" - so if you take your money out, rather than getting an extra dollop of cash, you effectively get a bill for your negative slice of the non existent Reserves.

Hence my thoughts that MVA is a better description. When the Reserves are healthy the MVA is positive, it means you get a Terminal Bonus.

When the Reserves are nonexistent and the funds liability to all its policyholders is greater than the sum of is assets, then the MVA becomes the MVR - or a reduction in your fund value so that your returns reflect the true situation.

Look back at Yr1 and Year 2 in my example - at the end of year two the With Profits investor was ahead of the game having had two lots of 5%.

The Non with profit investor did far better in year one, but fell back in year 2, then recovered in year three.

With Profits, smoothes returns so that rather than sharp peaks and troughs you get a curved line. But the curve can still be up and down. It is just not so extreme.

Do I recommend With Profits - No

Why? - because there are better more secure investments and a wider choice of funds out there so you can effectively construct a portfolio for a client by having funds that reflect their short medium and long term needs.

Gone are the days when buying into one companies fund for 25 years seemed to be a good thing.

Now with fund supermarkets (for some reason now called "Platforms" in the media - no idea why - more synonymous with Trains than investments for me but what the heck!) you can open an account, tag on some life cover if you want, but move your investments/savings around within the account to different funds and fund managers.

Sounds a good explanation to me. Frank downsizing is great but not always possible or even desirable. There can be emotional reasons someone doesn't want to move. Some people don't want to publically loose face of moving to a smaller house.

IMO people in the future will see their home as just another pension. Maybe family members will buy a chunk of the house as an additional investment at a cheaper rate than equity release.

People need to look at all the options and understand all the pros and cons, what is right for one person is not always right for another. Getting impartial advice you can trust is very important and where possible get the whole family round the table with the adviser.

 

[WatsonJohnG]

Clive thank you for replying at such length

 

[CliveV]

No Problem - It boils down to in the past it was OK to take out a 25 year Endowment to pay off your mortgage - you got LAPR! (Life assurance premium relief) - Now Gordon taxes your premiums on general insurance!!!

Investing with the Man from the Pru or Scot Wid or NU or Friends Prov or Standard Life etc etc worked and people got their home and a lump sum. It was never guaranteed but it seemed that way.

I have been shown today a report in the Mail on Sunday about one of the psuedo legal firms getting all upset because complaints about IFA's are not upheld anything like as much as for the Banks Building Societies etc.

Simple answer is that IFA's as a whole follow the rules. They also work for you, the client, not some faceless organisation (tho some large IFA firms are indeed faceless organisations themselves - so be careful!) and so have a vested interest in getting it right.

As far as I can see - all the large organisations - especially the big four banks - just want to sell you something - tick the box for a sale on a target sheet then move on to the next sucker.

Long term relationships are the key to good advice in my book.

 

[WatsonJohnG]

Yes Clive I backed out of the Nat West guaranteed 10% over 5 years recently as it seemed to depend on forecasting 5 years ahead when a guaranteed B S 5% per annum was available at no risk and the cash was available immediately if needed

 

[Guest]

Several interesting points in this one.

As Clive mentions 20-30 years ago virtually everybody took out an endowment to pay off their mortgage. It was safe?? and did offer a bonus at the end. Again it was basing the future on what happened in the past. The era of the 60's, 70's and even 80's when inflation was rampant meant that any such scheme was a winner. I was lucky, I took mine out in 1980 and when I cashed it in in 2005 I received back a sum equalling 11% growth annnually of what I had put in over the years, plus I had received life cover. Obviously someone signing up in 2000 would not do the same in 2025. But do you really know that? As Clive also correctly says, the events in September 2001 threw all the markets into freefall for several years. So why could not event changes in the next 20 years make something like this a winner at the end? Of course all the Fund managers after September 11th immediately offloaded equities for low yielding 'safer' bonds. If they had stayed with equities the bonuses in the last few years tremendous stockmarket growth would have been handsome. Their mistakes were paid for by the Policy holders.

So of course now everyone signs up for a repayment mortgage. Great, but no bonus at the end. Yes, you could say, well put some extra in a money investment scheme and get the returns that have been mentioned by Clive and others. But people don't normally do that, I am afraid they are not that smart. Any extra cash will go on a new car, or a holiday in Majorca or wherever. So, the future will see a plethora of 'equity release' schemes some of which wil be dubious, and no doubt encouraged by the Treasury who will tax the 'windfall's. A housing market 'crash' wil also screw up a lot of these ideas as well.

They say a week is a long time in politics. Then 10 years is a lifetime in finance. The only way to win, is to do the opposite of the 'herd'.

 

[CliveV]

Hi Scotch Lad

Whilst you are correct that With Profits funds moved from Equities to Corporate Bonds/Gilts (see! - yet another use of the word Bond) - I think it should be pointed out that this was most certainly NOT what the With Profits Fund Managers wanted to do.

It was forced upon them by the FSA after the FSA was caught with its trousers round its ankles over the Equitable Life Debacle. As well as Equitable life giving out annuity guarantees that it tried to renege on, it also ran with the lowest "Free Assets" of any life Office.

If you look at my description of how With Profits works you will see that I mention the "Reserves" which when positive give rise to a terminal bonus and when non existent give rise to an MVR.

The FSA constantly ignored the warnings and accepted the idea that Equitable Life was "different" because it supposedly did not pay commission to "middle men". It just paid obscene "bonuses" to its sales staff. It was quite wrong to state that we as IFA would not use them - we did - we just charged the client a fee if Equitable came out best in our research. However, Standard & Poor's and other rating agencies soon started warning of problems ahead as the figures re the liabilities became known.

But the FSA refused to act.

When Equitable went under the knee-jerk reaction of the FSA was to restrict the equity exposure of all With Profits funds.

The effect on the recovery of With Profits funds by this act of legislative vandalism due to chronic constipation of the FSA's ability to actually understand what it regulates and their embarrassment at getting it SO WRONG re Equitable Life, has been dire.

BUT PLEASE Scotch Lad - do not think that the With Profits fund managers wanted to offload Equities JUST when things were staring to pick up! If they did that they would be guilty of gross negligence.

As it happens I believe the FSA is guilty of gross negligence but the FSA as a Government Agency is immune from prosecution. So they can screw up and loose peoples money by their numpty thinking and never be held to account. It is estimated that With Profits funds would have recovered by now but for the interference of the FSA. That is strange for a Government Agency tasked with protecting the consumer.

However, EU law is likely to change that. So maybe you guys can see why I quite like the idea of the EU.

 

[Guest]

Clive,

I think there are some important points that should be made. The industry as you correctly state followed guidelines from the government, but if you are suggesting that politicians had the faintest idea of either how the industry worked, or how to resolve it, then I feel you are being very disingenous. These are Labour politicians we are talking about after all. The industry discussed, and then suggested to the government how things should proceed and then followed those agreed guidelines. Equitable Life also occurred before the events of September 11th, so there is no connection. I also admit to having an Equitable Life Policy, but not with the 'with profits' fund, mine was in equities, and escaped?? unscathed.

We should also remember that this is a service industry, it does not produce anything physical. It merely survives by moving money from one source to another, and taking a share of the proceeds of the transaction. It never actually supplies the money. Now there is nothing inherently wrong in that as people are inherently greedy and will follow any chance to make a 'quick buck'. Many have found out the hard way, Barlow Clowes for instance, that trusting a money manager may seriously damage your wealth. Or for example the insurance broker in Midlothian who yesterday was jailed for defrauding 11 million pounds of clients money. I have also yet to see one public statement of a Fund manager being 'fired' for incompetence. Their success? is rewarded with huge bonuses, their mistakes? with policy holders loss. Now, as already stated people are the gullible, and will always be taken in by the thought of easy money.

It is a bit like a roulette table. You watch people always backing a number at odds of 35 to 1, or whatever, and usually losing. I actually met a professional gambler in the 80's who worked for the 'big boys' He would walk into a casino with 200,000 pounds in his pockets and only bet red or black, namely 2 to 1. He made on average 500000 pounds profit per week, but he could afford? to lose the 200k in one night. He could come back again. That is the difference. Small people cannot afford the loss, but the bigboys can. It is the same with policyholders and fund managers.

I respect the integrity of IFA's who probably are in the main genuine people. Unfortunately, I met the ones who were less inclined, and paid the price of youth and naivity. However, in their defence I know they were merely following the encouragements, usually financial, of their own industry and thought nothing ill of it at that time. They could not sell something that was not supplied to them.

I think your own comments regarding 'free lunches' are appropriate. Anyone thinking of handing over their hard earned cash should ask themselves, what exactly am I, and more pointedly, the advisor/Company getting out of this deal? If the only 'guarantees' are the fees, then think again.

 

[CliveV]

Hi Scotch Lad.

I never said that Equitable Life was directly connected to the sad events of 9-11. But it happened at about the same time and the "fallout" conspired to aggravate an existing very poor situation.

Equitable Life goes Pear-Shaped (See later*)

Then after this we had:-

9-11, Enron, Gulf War II, then FSA criticised for not spotting Equitable Lifes troubles so the react by insisting ALL With Profits funds offload equities.

The timing is truly awful because equities are just poised for a return. But the offloading of all those shares by the investment houses cause a further decline in share prices.

So whilst not direct link between Equitable Life and 9-11, history proves that as separate as these two events are, they combined to cause an effect for the With Profits investor that was disproportionately larger than each single event should have caused.

So I am not being disingenuous, just reiterating fact as it happened. And it is not my sole analysis - brains far more adept than mine came to these conclusions.

It is like any other "accident" - rarely is their just one cause. It is usually a combination of unrelated events.

The facts are that Independent advice is gaining ever more "popularity". Tied Agents representing just one company have all but disappeared. The Man from the Pru is no more.

Even the FSA tinkering with this and now allowing "Multi Ties" has been a non-event. People are saying:-

"Why should I 'take advice' from someone who can only talk about a few companies plans and is not able to advise on my existing plans?"

I appreciate that you seemed to have been "burnt" some time ago Scotch Lad, but for goodness sake man! - you sound like someone who had a bad experience with a Vauxhall Viva in the 1970's and is now running a campaign against all Gen Motors vehicles.

Things have moved on.

*Why Equitable collapsed

The latest report on this and the Regulators role is not yet published. It has just been delayed yet again.

Current analysis and the last report indicates it collapsed mainly because

A- It was a mutual and had none of the checks and balances and reporting requirements that a normal plc or Ltd Co. has to have in place.

B- It was very financially weak and so was not being used by IFA's in the main because most of us prefer to use those organisations that score highly for financial strength,

C- It had to then distribute its plans by its own salesforce thereby cutting out the "middleman", the IFA, whose job it is to select the most suitable provider and plan.

D- The FSA did not check the financial strength data supplied to them by Equitable - they simply believed Equitable. BUT - Equitable had this "trick" of counting the money that it converted into an Annuity or a Drawdown plan again as "New Business". So if I saved up

 

[Guest]

Oh dear Clive, Did you have your Weetabix this morning?

You must recognize that you have a vested interest in this industry, and as such may not be able to see things in the same way as those without that interest.

Equitable Life is a subject for discussion, but probably not related to the current one. Its 'difficulties' became public knowledge a year, at least, prior to the events in the USA. However, I am sure you will agree it is currently a Company with over 7 billion pounds of Policies and has just announced a profit (free assets) on its business of 700+ million. Now how they got to this position is a matter for discussion, but I am sure you would agree that those factors do not necessarily define a weak Company. If so, please can I join one? You state they were not governed properly, but who was doing the governing when we have an industry that desperately tries to maintain an 'internal' form of governance? I am not advocating Equitable Life is devoid of guilt, but the industry's preoccupation with it, suggests there are other skeletons in the closets somewhere. What I suspect happened was they were caught out, before others were.

It is interesting that a number of the other 'main' players in these 'naughty' years are now parts of other organisations, so the scrutiny is withheld.

However, while I would be delighted to discuss the merits, or otherwise, of various financial institutions, this is not the place.

You mention that you feel I have been 'burned 'and therefore have a biased opinion. Up to a point that is correct. Once one has been 'fleeced' on more than one occasion one does recognize one is either a na

 

[Val & Frank]

Hi All,

Very very interesting. All I can say is when I saw Cash ISAs I thought they are for me!!!. I do have a company pension ( hence early retirement ) but the Cash ISA carries Zero Risk, well almost. So my pension back up is 5% nett in the building society. It pays the caravan insurance + car and household insurance. So that will do for me.

Val & Frank

 

[Jo-AnneFairway5402010]

i know someone who look into it and they were better off having a small morgage ie

 

[CliveV]

A couple of points.

Scotch Lad - you seemed to say that the Finance Industry just moves money around they do not "Make" anything. Who do you think puts up the capital for business expansions - new business ventures etc?

Frank - Nothing wrong with a cash Isa - but do remember that even with 3% inflation a return of 5% nets down to 2% - so if you are taking 5% as income each year then your capital is loosing buying power "safely".

Jo-anne - An Equity release scheme is a kind of mortgage. Only difference is that, usually, with an equity release scheme you pay back nothing whilst you are alive and so the capital and interest payment accrue and the sum borrowed plus the interest are taken out of the estate of the last spouse to die.

A "normal" mortgage typically requires at least the interest on the loan to be paid each month.

Don't get me wrong!! - I am not disagreeing with the thrust of what you say. I think it is terrible that these schemes are advertised on the TV as an easy way of getting capital for trivial things like a holiday etc! Barmy!!

But they do work well in some cases.

On a slight tangent - An FSA spokesman stood up and criticised all advisers for still advocating Endowments not long ago. He just looked at the figs and assumed that we all recommended them. In fact the sales of these endowments were solely from those awful TV adverts where an old actor sells the supposed merits of a crappy little live policy for funeral costs or for "something to leave the grandchildren".

You usually get offered a tacky clock of something similar as a free gift to welcome you to being conned.

Believe me there are FAR better plans available than those ones. They have to advertise the crappy ones on TV because no competent adviser would touch them with a bargepole.

Be careful!

 

[Guest]

Clive,

I am sorry,but I suspect you are possibly digging a deeper hole. We currently have the situation where Tata is trying to buy Corus, a far bigger enterprise, and using debt to finance the deal, similarly any private equity investor looks to 'load' the purchase with dept to pay the purchase. The main 'pushers' of the market have been the private equity firms who use debt to finance the deals.I have yet to see a single instance in the last year where a 'purchaser' put investment into any Company. That is against the criteria of 'profit'. A very simple look at the current stock market shows that foreign buyers are queuing up to buy British assets, why? because they see them as cheap purchases. Even Laura Ashley is owned by Malaysians. Buy a water Company and you have a licence to print money. The regulator Ofwat, will grumble, but will not stop you. Severn Trent, Nothumbrian Water, also on the target lists. Look at BHS, Green removed 1.5 billion as a personal dividend, and then loaded BHS with a debt. He hoped sales would pay this off, it didn't and he now sees sales dropping. Who will pay? Not him you can bet. P&O was bought by the Dubai Ports Authority, why? because it was an easy investment. The Quatar's are also sniffing around the market looking for bargains.

It would absolutely wonderful to state that Britain Plc was investing in its home market, but as far as I can see the finance managers think it far better to 'trouser' the profit from a sale than look to the future.

Let us be realistic, it is a global market and we are currently, through greed, selling the 'family silver'.

 

[CliveV]

Scotch Lad - There is no hope for you! - You are determined to see the very worst in all that goes on around you. What you quote is nonsense. If what you say is true then the global economy has already collapsed. Corus is being taken over by one of the largest steel organisations in the world. Do you really think those that work for Corus are that worried about what part of the world the profits will now go to? No they will worry about being able to put food on the table.

If Tata had not bought them then the outlook was extremely bleak. But then so to is any manufacturing job in the UK. That is not the fault of the Finance Industry! - that is just the emergence of China and India as world economic players. We ignore them at our peril.

Of cause Tata financed the deal by borrowing!!!!!!! Do you REALLY think that a company would finance such a deal by saving up its pennys on its proverbial mantelpiece???

Sorry to puncture your bubble but real finance does not work like that.

Yes the worlds economy suffered after 9-11

But hello!!!!!!!!!!!

It is still functioning - a bit bruised admittedly - but functioning nevertheless.

You carry on doing what you want - I will carry on making money for my clients - have done so for over 30 years - no complaints. Persistency of 100% and still taking on new clients by recommendation only.

Unlike yourself who seems to want to deride everything. Some of us actually know how the system works and can benefit our clients by using our expertise.

My only advice to you is that if you cannot appreciate the bigger picture it is probably best that you stick to what you know and feel comfortable with.

 

[Val & Frank]

Gentlemen,

You are both right,you just seem to be coming at it from opposite ends. My son can make

 

[emmerson2]

By 'eck, I started summat with that one,didn't I? Thanks all, but herself still won't agree to it. She says we don't need the extra money.This is true, we can get by quite nicely on what we have, but a bit extra is always nice isn't it?

 

[CliveV]

Hi emmerson.

Your good lady has her head screwed on. To repeat what I said earlier - these schemes are expensive to set up, expensive in the long term because the interest is compounded annually and should NOT, in my view, be advertised as an easy option to a debt or lack of disposable income. There are some complex cases where such a scheme works well, but they are not everyday cases in my book.

When I do recommend one it is after looking at all other options and I have to document that fact. I also have to (FSA Requirement) ensure that the whole family (your beneficiaries) are aware of what is happening. Why?

Because if you are short of capital/income then a better option is to looks at what other members of the family can do to help - especially if they are beneficiaries of your Will.

There are several other options all of which the FSA correctly insist that you are fully briefed on before you sign on the dotted line.

However, just like the crappy little "funeral expenses" endowments advertised on the TV, if you buy an Equity Release scheme direct from the provider via one of their Tied Agents from the TV adverts, be warned! It is Caveat Emptor - Buyer Beware.

And beware you most certainly should.

 

[Pelyma1]

Here here! Scotch Lad you mentioned about never seeing fund managers sacked. You don't follow fund manager changes obviously, New Star have a very aggressive stance on this, as do Fidelity and Invesco Perpetual. If you then look at multi manager funds then fund managers are regularly sacked. The difficulty IMO is finding which managers perform by skill and which ones by luck!

 

[Guest]

I am sure Clive is absolutely right.. there is no hope for me. I am a 'born again' cynic who believes that anyone who states he/she can manage my money better than I can, has a vested interest in grabbing some of it. I stopped a long while ago, of buying into the the idea of my putting up 100% of the money, and I, and an adviser, sharing the profit, whereas I accept 100% of the loss, whereas the adviser still makes a profit on fees/commisions. Did not seem quite fair to me, but then again I am a cynic.

However, I am sure he has to agree that the current 'frenzy' in the stock market is due to injections by private equity companies flush with money, and looking for good homes for it. Even this week, Scottish Power shot ahead on take over rumours by a Spanish Company, but the deal included a private equity company, and a lot of debt to finance the deal. Where does this all get paid from one has to ask? A quick look at Farepak indicates the problems there arose because the owners decided to finance another purchase by loading debt onto Farepak. The purchase turned out to be a loser, so Farepak paid the price of incompetence. So business is doing very well, perhaps better than it should, but mainly on take over rumours, not necessarily good growth. Severn Trent has already 'frothed' on take over rumours, BOC disappeared into the arms of the Germans. P&O became part of DPA, BAA became Spanish. Forth Ports is a target. Even House of Fraser is now Icelandic. So yes. financial business is indeed doing well, but how much is due to takeover fees rather than good business growth? I did not wish to sell my stake in BOC as I felt it was a good British, and profitable Company, and that was why I bought it in the first place, but because the 'institutions', and of course the directors, decided a quick buck was the way to go, my shares were compulsorily purchased. Now the profits go to German shareholders, not me. The average pay rise in the city this year is, according to the news, 21%. If you have received a pay rise this year of 21% then good luck to you. The bonuses being paid to the financial sector by Xmas are evidently totalling some 4 billion, again, if you are one of the recipients, then good luck to you. But again I have to ask, where does this money all come from? They don't actually make anything.

Now if an adviser approached me and offered a 'split risk' strategy, or a 'no win, no pay' deal, then I would at least feel he/she had an interest in ensuring my investment succeeded. Just pointing out that the very small print at the bottom includes the clause' investments may fall, as well as rise' and 'sorry' is not much comfort. If I am willing to take the risk, and put my money where my mouth is, then why cannot the adviser, but then again I am a 'burned' cynic.

Now Clive may respond that advisers can offer advice on a fee basis, you pay them for advice and it is up to you to take it, or not. That is perfectly fair and reasonable. If I wish advice on my car for instance, I pay the garage to give me the benefit of their time. It, of course usually then involves a hefty repair bill, but that is neither here nor there. I also accept that there are many people to whom financial planning is a mystery, and rely on an adviser to assist them, and many do an excellent job. However, the industry has a 'history' of nefarious practices from many years, and it will take a lot to change the perception that all too many abuse that trust.